The Affordable Care Act (ACA) imposed severe restrictions on physician-owned hospitals, preventing the formation of new physician-owned hospitals and limiting the expansion of existing ones. Since then, almost one-quarter of physician-owned hospitals have been acquired, changed ownership, or closed. CMS recently doubled-down on the ACA’s restrictions in their 2024 proposal.
Using newly available price transparency data, our study in JAMA Network Open revealed that both commercial negotiated prices and cash prices in physician-owned hospitals were about one-third lower than their competitors across eight common services.
Ample evidence also suggests that physician-owned hospitals enhance physician engagement, provide higher-quality care, and have improved patient satisfaction, lower costs, and better infection rates compared with their competitors.
Critics of physician-owned hospitals — mostly non-physician owned hospitals — argue that physician ownership creates financial conflicts of interest, because of the concern that physician owners would have both the means and motivation to refer patients to their hospitals for unwarranted care. They would then have the opportunity to make money both from the care they provide and from any profits their hospitals realize (so-called “double dipping”).
The reality is that such “double dipping” can occur in large integrated healthcare delivery systems that own physician groups. This set up allows for it. For example, Optum, a subsidiary of the insurer UnitedHealth Group, is affiliated with 70,000 physicians, making it the largest employer of physicians in the U.S. These health systems are not subject to self-referral restrictions and can even mandate that contracted physicians refer patients to their hospitals.
Moreover, many large integrated healthcare systems (including academic medical centers) have profit-sharing and performance measures whereby physicians receive payment when health system financial metrics are met, effectively allowing physicians to financially benefit both from providing patient care and from hospital operations.
In fact, hospitals not owned by physicians (nonprofit hospitals, for example) have been engaged in profiteering activities at the expense of patient interest, such as using anti-competitive tactics to raise prices and denying charity care to eligible low-income patients. Not being owned by physicians is no guarantee that hospitals will behave virtuously, and the notion that physician-owned hospitals are greedier than hospitals run by MBAs is unsubstantiated and, we believe, wrong.
Among many critics, the true concern is that physician-ownership creates an attractive option for consumers, threatening other hospitals’ financial position. The recently-introduced Patient Access to Higher Quality Health Care Act of 2023 would remove the ACA’s ban on the creation and expansion of physician-owned hospitals. Unsurprisingly, hospital groups strongly oppose the bill.
The Federal government’s restrictions on physician-owned hospitals create an unfair playing field that protects the interests of powerful hospitals. As a result of protectionism, health system consolidation has accelerated. We now have market domination by a limited number of powerful health systems with unparalleled pricing power. Patients and employers have ended up with limited choices and higher prices.
We need more, not fewer, physician-owned hospitals. They deliver high-quality care at lower prices, instill competition in the hospital market, expand patient access to quality care, and pay taxes. Congress should create value for American workers and employers by lifting restrictions on physician-owned hospitals. If these hospitals are truly bad, market competition will make them irrelevant. Do not pick winners and losers. Let them compete!
Elizabeth Plummer, PhD, MPA, CPA, is a professor of accounting and professor of medical education at Texas Christian University in Fort Worth. Peter Cram, MD, MBA, is a professor of medicine at the University of Texas Medical Branch in Galveston. Ge Bai, PhD, CPA, is a professor of accounting and professor of health policy and management at Johns Hopkins University in Baltimore.
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